Appendix B: The Council for Mutual Economic Assistance --
Czechoslovakia

THE COUNCIL FOR MUTUAL ECONOMIC ASSISTANCE

THE FOUNDING of the Council for Mutual Economic Assistance
(also referred to as Comecon, CMEA, CEMA, or the Council) dates
from a 1949 communiqué agreed upon by the Soviet Union, Bulgaria,
Czechoslovakia, Hungary, Poland, and Romania. The precise reasons
for Comecon's formation in the aftermath of World War II are
quite complex, given the political and economic turmoil of that
time. However, Joseph Stalin's desire to enforce Soviet
domination of the small states of Eastern Europe and to mollify
some states that had expressed interest in the Marshall Plan (see
Glossary) were the primary factors in Comecon's formation. The
stated purpose of the organization was to enable member states
"to exchange economic experiences, extend technical aid to one
another, and to render mutual assistance with respect to raw
materials, foodstuffs, machines, equipment, etc."

Until the late 1960s, cooperation was the official
term used to describe Comecon activities. In 1971, with the
development and adoption of theComprehensive Program for the
Further Extension and Improvement of Cooperation and the Further
Development of Socialist Economic Integration by Comecon Member
Countries, Comecon activities were officially termed
integration. In simplest terms, economic integration is
defined as internationalizing the production of manufactured and
semimanufactured goods, resources, and services. More
specifically, integration attempts to equalize "differences in
relative scarcities of goods and services between states through
the deliberate elimination of barriers to trade and other forms
of interaction." Although such equalization has not been a
pivotal point in the formation and implementation of Comecon's
economic policies, improved economic integration has always been
Comecon's goal.

Soviet domination of Comecon is a function of its economic,
political, and military power. The Soviet Union possesses 90
percent of Comecon members' land and energy resources, 70 percent
of their population, 65 percent of their national income, and
industrial and military capacities second in the world only to
those of the United States. The location of many Comecon
committee headquarters in Moscow and the large number of Soviet
nationals in positions of authority also testify to the power of
the Soviet Union within the organization.

Soviet efforts to exercise political power over its Comecon
partners, however, have been met with determined opposition. The
"sovereign equality" of members, as described in the Comecon
Charter, assures members that if they do not wish to participate
in a Comecon project, they may abstain. East European members
have frequently invoked this principle in fear that economic
interdependence would further reduce political sovereignty. Thus,
neither Comecon nor the Soviet Union as a major force within
Comecon has supranational authority. Although this fact ensures
some degree of freedom from Soviet economic domination of the
other members, it also deprives Comecon of necessary power to
achieve maximum economic efficiency.

As of 1987, those countries holding full membership in
Comecon were the Soviet Union, Bulgaria, Czechoslovakia, the
German Democratic Republic (East Germany), Hungary, Romania,
Poland, Cuba, the Mongolian People's Republic (Mongolia), and
Vietnam. (For the purposes of this appendix, the phrases "East
bloc," the "six European members," or the "European members of
Comecon" are used interchangeably to refer to Bulgaria,
Czechoslovakia, East Germany, Hungary, Poland, and Romania. When
Yugoslavia and Albania are referred to, they are mentioned
specifically by name.) The primary documents governing the
objectives, organization, and functions of Comecon are the
Charter of the Council for Mutual Economic Assistance (first
adopted in 1959 and subsequently amended; all references herein
are to the amended 1974 text); the Comprehensive Program for the
Further Extension and Improvement of Cooperation and the Further
Development of Socialist Economic Integration by the Comecon
Member Countries, adopted in 1971; and the Comprehensive Program
for Scientific and Technical Progress up to the Year 2000,
adopted in December 1985. The 1985 Comprehensive Program for
Scientific and Technical Progress and the rise to power of Soviet
general secretary Mikhail S. Gorbachev have increased Soviet
influence in Comecon operations and have led to attempts to give
Comecon some degree of supranational authority. The Comprehensive
Program for Scientific and Technical Progress seeks to improve
economic cooperation through the development of a more efficient
and interconnected scientific and technical base.

MEMBERSHIP, STRUCTURE, NATURE, AND SCOPE

Membership

In a January 1949 meeting in Moscow, representatives of
Bulgaria, Czechoslovakia, Hungary, Poland, Romania, and the
Soviet Union reached the formal decision to establish the Council
for Mutual Economic Assistance. The communiqué announcing the
event cited the refusal of these countries to "subordinate
themselves to the dictates of the Marshall Plan" (see Glossary)
and their intention to resist the trade boycott imposed by "the
United States, Britain and certain other countries of Western
Europe" as the major factors contributing to the decision "to
organize a more broadly based economic cooperation among the
countries of the people's democracy and the USSR."

Albania joined the six original members in February 1949, and
East Germany entered Comecon in 1950. (Albania, although it had
not formally revoked its membership as of mid-1987, stopped
participating in Comecon activities in 1961.) Mongolia acceded to
membership in 1962, and in the 1970s Comecon expanded its
membership to include Cuba (1972) and Vietnam (1978). As of 1987
there were ten full members: the Soviet Union, six East European
countries, and three extraregional members (see table A, this
Appendix).

Geography, therefore, no longer unites Comecon members. Wide
variations in economic size and level of economic development
have also tended to generate divergent interests among the member
countries. All these factors have combined to give rise to
significant differences in the member states' expectations about
the benefits to be derived from membership in Comecon.

Unity is provided instead by political and ideological
factors. All Comecon members are "united by a commonality of
fundamental class interests and the ideology of Marxism-Leninism"
and have common approaches to economic ownership (state versus
private) and management (plan versus market). In 1949 the ruling
communist parties of the founding states were also linked
internationally through the Cominform (see Glossary), from which
Yugoslavia had been expelled the previous year. Although the
Cominform was disbanded in 1956, interparty links continue to be
strong among Comecon members, and all participate in periodic
international conferences of communist parties. Comecon provides
a mechanism through which its leading member, the Soviet Union,
has sought to foster economic links with and among its closest
political and military allies. The East European members of
Comecon are also militarily allied with the Soviet Union in the
Warsaw Pact (see Appendix C).

Official statements stress, however, that Comecon is an open
international organization. Its Charter (Article II, Paragraph 2)
invites membership from "other countries which share the aims and
principles of the Council and have expressed their willingness to
assume the obligations contained in the . . . Charter." In the
late 1950s, a number of other communist-ruled countries--China,
the Democratic People's Republic of Korea (North Korea),
Mongolia, Vietnam, and Yugoslavia--were invited to participate as
observers in Comecon sessions. Although Mongolia and Vietnam
later gained full membership, China stopped attending Comecon
sessions after 1961. Yugoslavia negotiated a form of associate
status in the organization, specified in its 1964 agreement with
Comecon.

There are four kinds of relationships a country may have with
Comecon: full membership, associate membership, nonsocialist
"cooperant" status, and "observer country" status. Mutual
agreement determines the precise nature of the relationship. As
has been noted, Comecon has ten full members. Yugoslavia is the
only country considered to have associate member status. On the
basis of the 1964 agreement, Yugoslavia participates in twenty-
one of the thirty-two key Comecon institutions as if it were a
full member. Finland, Iraq, Mexico, Nicaragua, and Mozambique
have a nonsocialist cooperant status with Comecon. Because the
governments of these countries are not empowered to conclude
agreements in the name of private companies, the governments do
not take part in Comecon operations. They are represented in
Comecon by commissions made up of members of the government and
the business community. The commissions are empowered to sign
various "framework" agreements with Comecon's Joint Commission on
Cooperation. Since 1957 Comecon has allowed certain countries
with communist or pro-Soviet governments to attend sessions as
observers. In November 1986, delegations from Afghanistan,
Ethiopia, Laos, Nicaragua, and the People's Democratic Republic
of Yemen (South Yemen) attended the 42d Council Session as
observers.

Structure

Although not formally part of the organization's hierarchy,
the Conference of First Secretaries of Communist and Workers'
Parties and of the Heads of Government of the Comecon Member
Countries is Comecon's most important organ. These party and
government leaders gather for conference meetings regularly to
discuss topics of mutual interest. Because of the rank of
conference participants, decisions made here have considerable
influence on the actions taken by Comecon and its organs.

The official hierarchy of Comecon consists of the Session of
the Council for Mutual Economic Assistance, the Executive
Committee of the Council, the Secretariat of the Council, four
council committees, twenty-four standing commissions, six
interstate conferences, two scientific institutes, and several
associated organizations (see fig. A, this Appendix). These
bodies will be examined in turn.

The Session, officially the highest Comecon organ, examines
fundamental problems of socialist economic integration and
directs the activities of the Secretariat and other subordinate
organizations. Delegations from each Comecon member country
attend these meetings. Prime ministers usually head the
delegations, which meet during the second quarter of each year in
a member country's capital (the location of the meeting is
determined by a system of rotation based on the Cyrillic
alphabet). All interested parties must consider recommendations
handed down by the Session. A treaty or other kind of legal
agreement implements adopted recommendations. Comecon itself may
adopt decisions only on organizational and procedural matters
pertaining to itself and its organs.

Each country appoints one permanent representative to
maintain relations between members and Comecon between annual
meetings. An extraordinary Session, such as the one in December
1985, may be held with the consent of at least one-third of the
members. Such meetings usually take place in Moscow.

The highest executive organ in Comecon, the Executive
Committee, is entrusted with elaborating policy recommendations
and supervising their implementation between sessions. In
addition, it supervises work on plan coordination and scientific-
technical cooperation. Composed of one representative from each
member country, usually a deputy chairman of the Council of
Ministers, the Executive Committee meets quarterly, usually in
Moscow. In 1971 and 1974, the Executive Committee acquired
economic departments that rank above the standing commissions.
These economic departments considerably strengthened the
authority and importance of the Executive Committee.

There are four council committees: Council Committee for
Cooperation in Planning, Council Committee for Scientific and
Technical Cooperation, Council Committee for Cooperation in
Material and Technical Supply, and Council Committee for
Cooperation in Machine Building. Their mission is "to ensure the
comprehensive examination and a multilateral settlement of the
major problems of cooperation among member countries in the
economy, science, and technology." All committees are
headquartered in Moscow and usually meet there. These committees
advise the standing commissions, the Secretariat, the interstate
conferences, and the scientific institutes in their areas of
specialization. Their jurisdiction is generally wider than that
of the standing commissions because they have the right to make
policy recommendations to other Comecon organizations.

The Council Committee for Cooperation in Planning is the most
important of the four. It coordinates the national economic plans
of Comecon members. As such, it ranks in importance only after
the Session and the Executive Committee. Made up of the chairmen
of Comecon members' national central planning offices, the
Council Committee for Cooperation in Planning draws up draft
agreements for joint projects, adopts a resolution approving
these projects, and recommends approval to the concerned parties.
If its decisions were not subject to approval by national
governments and parties, this committee would be considered
Comecon's supranational planning body.

The international Secretariat, Comecon's only permanent body,
is Comecon's primary economic research and administrative organ.
The secretary, who has been a Soviet official since Comecon
creation, is the official Comecon representative to Comecon
member states and to other states and international
organizations. Subordinate to the secretary are his deputy and
the various departments of the Secretariat, which generally
correspond to the standing commissions. The Secretariat's
responsibilities include preparation and organization of Comecon
sessions and other meetings conducted under the auspices of
Comecon; compilation of digests on Comecon activities; conduct of
economic and other research for Comecon members; and preparation
of recommendations on various issues concerning Comecon
operations.

In 1956 eight standing commissions were set up to help
Comecon make recommendations pertaining to specific economic
sectors. The commissions have been rearranged and renamed a
number of times since the establishment of the first eight. In
1986 there were twenty-four standing commissions (see fig. B,
this Appendix).

Each commission is headquartered in the capital of a member
country and headed by one of that country's leading authorities
in the field addressed by the commission. The Secretariat
supervises the actual operations of the commissions. The standing
commissions have authority only to make recommendations, which
must then be approved by the Executive Committee, presented to
the Session, and ratified by the interested member countries.
Commissions usually meet twice a year in Moscow.

The six interstate conferences (on water management, internal
trade, legal matters, inventions and patents, pricing, and labor
affairs) serve as forums for discussing shared issues and
experiences. They are purely consultative and generally act in an
advisory capacity to the Executive Committee or its specialized
committees.

The scientific institutes on standardization and on economic
problems of the world socialist system concern themselves with
theoretical problems of international cooperation. Both are
headquartered in Moscow and are staffed by experts from various
member countries.

Several affiliated agencies, having a variety of
relationships with Comecon, exist outside the official Comecon
hierarchy. They serve to develop "direct links between
appropriate bodies and organizations of Comecon member
countries." These affiliated agencies are divided into two
categories: intergovernmental economic organizations (which work
on a higher level in the member countries and generally deal with
a wider range of managerial and coordinative activities) and
international economic organizations (which work closer to the
operational level of research, production, or trade). A few
examples of the former are the International Bank for Economic
Cooperation (manages the transferable ruble system), the
International Investment Bank (in charge of financing joint
projects), and Intermetal (encourages cooperation in ferrous
metallurgy). International economic organizations generally take
the form of either joint enterprises, international economic
associations or unions, or international economic partnerships.
The latter includes Interatominstrument (nuclear machinery
producers), Intertekstilmash (textile machinery producers), and
Haldex (a Hungarian-Polish joint enterprise for reprocessing coal
slag).

Nature of Operation

Comecon is an interstate organization through which members
attempt to coordinate economic activities of mutual interest and
to develop multilateral economic, scientific, and technical
cooperation. The Charter states that "the sovereign equality of
all members" is fundamental to the organization and procedures of
Comecon. The Comprehensive Program further emphasizes that the
processes of integration of members' economies are "completely
voluntary and do not involve the creation of supranational
bodies." Hence under the provisions of the Charter, each country
has the right to equal representation and one vote in all organs
of Comecon, regardless of the country's economic size or the size
of its contribution to Comecon's budget.

The "interestedness" provisions of the Charter reinforce the
principle of "sovereign equality." Comecon's recommendations and
decisions can be adopted only upon agreement among the interested
members, and each has the right to declare its "interest" in any
matter under consideration. Furthermore, in the words of the
Charter, "recommendations and decisions shall not apply to
countries that have declared that they have no interest in a
particular matter."

Although Comecon recognizes the principle of unanimity,
disinterested parties do not have a veto but rather the right to
abstain from participation. A declaration of disinterest cannot
block a project unless the disinterested party's participation is
vital. Otherwise, the Charter implies that the interested parties
may proceed without the abstaining member, affirming that a
country that has declared a lack of interest "may subsequently
adhere to the recommendations and decisions adopted by the
remaining members of the Council."

The descriptive term Comecon applies to all
multilateral activities involving members of the organization and
is not restricted to the direct functions of Comecon and its
organs. This usage may be extended as well to bilateral relations
among members, because in the system of socialist international
economic relations, multilateral accords--typically of a general
nature--tend to be implemented through a set of more detailed,
bilateral agreements.

Comecon Versus the European Economic Community

Although Comecon is loosely referred to as the "European
Economic Community (EEC) of Eastern Europe," important contrasts
exist between the two organizations. Both organizations
administer economic integration; however, their economic
structure, size, balance, and influence differ. The EEC
incorporates the 270 million people of Western Europe into
economic association through intergovernmental agreements aimed
at maximizing profits and economic efficiency on a national and
international scale. It is a regionally, not ideologically,
integrated organization, whose members have all attained an
accomplished level of industrialization and are considered to be
roughly equal trading partners. The EEC is a supranational body
that can adopt decisions (such as removing tariffs) and enforce
them. Activity by members is based on initiative and enterprise
from below (on the individual or enterprise level) and is
strongly influenced by market forces.

Comecon joins together 450 million people in 10 countries and
on 3 continents. The level of industrialization from country to
country differs greatly: the organization links three
underdeveloped countries--Cuba, Mongolia, and Vietnam--with some
highly industrialized states. Likewise, a large national income
difference exists between European and non-European members. The
physical size, military power, and political and economic
resource base of the Soviet Union make it the dominant member. In
trade among Comecon members, the Soviet Union usually provides
raw materials, and East European countries provide finished
equipment and machinery. The three underdeveloped Comecon members
have a special relationship with the other seven. Comecon
realizes disproportionately more political than economic gains
from its heavy contributions to these three countries'
underdeveloped economies. (see Mongolia, Cuba, and Vietnam, this
Appendix).

Socialist economic integration or "plan coordination" forms
the basis of Comecon's activities. In this system, which mirrors
the member countries' planned economies, the decisions handed
down from above ignore the influences of market forces or private
initiative. Comecon has no supranational authority to make
decisions or to implement them. Its recommendations can only be
adopted with the full concurrence of interested parties and do
not affect those members who declare themselves disinterested
parties.

EVOLUTION

Early Years

During Comecon's early years (through 1955), its sessions
were convened on an ad hoc basis. The organization lacked clear
structure and operated without a charter until a decade after its
founding. These loose arrangements reflected the limited goals of
Comecon at the time and the character of the Marshall Plan (also
governed by a loose structure), to which Comecon served as a
response.

From 1949 to 1953, Comecon's function consisted primarily of
redirecting trade of member countries toward each other and
introducing import-replacement industries, thus making members
economically more self-sufficient. Little was done to solve
economic problems through a regional policy. This was a period,
moreover, when their first five-year plans, formulated along the
Soviet model, preoccupied the East European members. In the
headlong pursuit of parallel industrialization strategies, East
European governments turned their attention inward. Because of
Stalin's distrust of multilateral bodies, bilateral ties with the
Soviet Union quickly came to dominate the East European members'
external relations. Each country dealt with the Soviets on a one-
to-one basis by means of direct consultations with Moscow through
local Soviet missions. Although reparations transfers (extracted
by the Soviet Union in the immediate postwar years from those
East European states it regarded as former World War II enemies)
had been replaced by more normal trade relations, outstanding
reparations obligations were not halted until 1956. In these
circumstances, there was scarcely need or scope for multilateral
policies or institutions.

Rediscovery of Comecon after Stalin's Death

After Stalin's death in 1953, however, new leaders and new
approaches emerged in the countries of the region. The more
industrialized and the more trade dependent of the East European
countries (Czechoslovakia, East Germany, and Poland) had
belatedly recognized the need to adapt the Soviet autarkic model
to their own requirements. New approaches to foreign trade
emerged during discussions of economic reform. Given their
isolation from the rest of the world and the dominance of
intrabloc trade in their external relations, interest in these
countries inevitably centered on new forms of regional
cooperation. For small, centrally planned economies, this meant
the need to develop a mechanism through which to coordinate
investment and trade policies.

Instability in Eastern Europe and integration in Western
Europe increased the desirability of regularizing intrabloc
relations in a more elaborate institutional framework. The 1955
Warsaw Treaty on Friendship, Cooperation, and Mutual Assistance
(see The Warsaw Pact, 1955-70, Appendix C) and its implementing
machinery reinforced political-military links. On the economic
front, Comecon was rediscovered. The example of the 1957 Treaty
of Rome (see Glossary), which initiated the processes of West
European economic integration, gave impetus and direction to
Comecon's revival.

Rapid Growth in Comecon Activity, 1956-63

The years 1956 to 1963 witnessed the rapid growth of Comecon
institutions and activities, especially after the 1959 Charter
went into effect. Comecon, for example, launched a program to
unify the electrical power systems of its member-states and in
1962 created the Central Dispatching Board to manage the unified
system. The organization took similar steps to coordinate
railroad and river transport. In 1963 a special bank, the
International Bank for Economic Cooperation, was created to
facilitate financial settlements among members. In this period,
Comecon also undertook a number of bilateral and multilateral
investment projects. The most notable project led to the
coordinated construction of the Friendship oil pipeline for the
transport and distribution of crude oil from the Soviet Union to
Eastern Europe. The joint Institute for Nuclear Research,
established in 1956, initiated cooperation in another area of
long-term importance.

Parallel to these developments, the Soviet Union led efforts
to coordinate the investment strategies of the members in the
interest of a more rational pattern of regional specialization,
increased productivity, and a more rapid overtaking of the
capitalist economies. These efforts culminated in 1962 with the
adoption at the 15th Council Session of the Basic Principles of
the International Socialist Division of Labor. Although the
principles of specialization were generally favored by the more
industrial, northern-tier states, the less developed East
European countries were concerned that such specialization would
lead to a concentration of industry in the already established
centers and would thus thwart their own ambitious
industrialization plans. Moreover the increased economic
interdependence that the Basic Principles called for had
inevitable political connotations. The latter were reinforced in
1962 by articles and speeches by Soviet party leader Nikita
Khrushchev proposing a central Comecon planning organ to
implement the Basic Principles and foreseeing the evolution of a
"socialist commonwealth" based on a unified regional economy.

These proposals provoked strong and open reaction from
Romania on the grounds of "sovereign equality" of members, as
articulated most forcefully in the April 1964 Declaration of the
Romanian Central Committee. Romania's opposition (combined with
the more passive resistance of some other members) succeeded in
forestalling supranational planning and reinforcing the
interested-party provisions of the Charter. The institutional
compromise was the creation of the Bureau for Integrated
Planning, which was attached to the Executive Committee and
limited to an advisory role on coordination of members'
development plans. The Basic Principles, having lost their
momentum, were superseded several years later by the
Comprehensive Program.

A Lull and Subsequent Revitalization in the Late 1960s

After the fall of Khrushchev in 1964, the new Soviet
leadership was preoccupied with internal matters, and the East
European countries were themselves busy with programs of economic
reform. A comparative lull in Comecon activities ensued, which
lasted until well after the 1968 Soviet-led intervention in
Czechoslovakia. By the end of the 1960s, Eastern Europe had been
shaken by the 1968 events, and there was an obvious need to
revitalize programs that would strengthen regional cohesion.

In the late 1960s, the question of how to proceed with plans
for economic integration received considerable discussion in
specialized journals and at international meetings of experts.
Disillusioned by traditional instruments and concerned with the
need to decentralize planning and management in their domestic
economies, the reformers argued for the strengthening of market
relations among Comecon states. The conservatives continued to
stress the importance of planned approaches. If carried to a
logical extreme, the latter would involve supranational planning
of major aspects of members' economies and the inevitable loss of
national autonomy over domestic investment policy. The old
conflict between planned approaches to regional specialization
and the principle of sovereign equality could not be avoided in
any discussion of the mechanism for future cooperation.

The Comprehensive Program for Socialist Economic Integration,
1971

The controversy over supranational planning led to a
compromise in the form of the 1971 Comprehensive Program for the
Further Extension and Improvement of Cooperation and the Further
Development of Socialist Economic Integration, which laid the
guidelines for Comecon activity through 1990. The Comprehensive
Program incorporated elements of both the market and the plan
approaches. Following the market approach, the Comprehensive
Program sought to strengthen the role of money, prices, and
exchange rates in intra-Comecon relations and to encourage direct
contacts among lower level economic entities in the member
countries. At the same time, the Comprehensive Program called for
more joint planning on a sectoral basis through interstate bodies
that would coordinate members' activities in a given sector. New
organs were also envisaged in the form of international
associations that would engage in actual operations in a
designated sector on behalf of the participating countries.
Finally, the Comprehensive Program emphasized the need for
multilateral projects to develop new regional sources of fuels,
energy, and raw materials. Such projects were to be jointly
planned, financed, and executed.

The Comprehensive Program introduced a new concept in
relations among members: "socialist economic integration."
Section I, Paragraph 2 of the Comprehensive Program refers to the
need "to intensify and improve" cooperation among members and "to
develop socialist economic integration." This phrasing, which has
since become standard, implies that the latter is a new and
higher level of interaction, "a process of the international
socialist division of labor, the drawing closer of [member
states'] economies and the formation of modern, highly effective
national economic structures." The Comprehensive Program avoids,
however, the suggestion of ultimate fusion of members' economies
that had been contained in the 1962 Basic Principles. It sets
limits to the integrative process in the following terms:
"Socialist economic integration is completely voluntary and does
not involve the creation of supranational bodies."

The term integration had formerly been used to
designate the activities of Western regional organizations such
as the EEC. Its new usage in the Comprehensive Program suggested
parity of status between Comecon and the EEC. Under subsequent
amendments to its Charter, the competence of Comecon to deal with
other international organizations and third countries on behalf
of its members was made clear. Comecon sought to attract the
participation of developing countries in its activities. The
language of the Comprehensive Program may thus also be regarded
as an attempt to revitalize the image of Comecon in order to make
association with it an attractive alternative to associated
status with the EEC.

Comecon members adopted the Comprehensive Program at a time
when they were actively developing economic relations with the
rest of the world, especially with the industrialized Western
economies. The Comprehensive Program viewed the two sets of
policies as complementary and affirmed that "because the
international socialist division of labor is effected with due
account taken of the world division of labor, the Comecon member
countries shall continue to develop economic, scientific, and
technological ties with other countries, irrespective of their
social and political system."

In the years following the adoption of the Comprehensive
Program, Comecon made some progress toward strengthening market
relations among members. The Comprehensive Program's objectives
proved somewhat inconsistent with the predominant trends within
members' economies in the 1970s, which was a period of
recentralization--rather than decentralization--of domestic
systems of planning and management. The major exception to this
lack of progress lay in the area of intra-Comecon pricing and
payment, where the expansion of relations with the West
contributed to the adoption of prices and extra-plan settlements
closer to international norms. Achievements under the
Comprehensive Program have fallen under the heading of planned
approaches, especially in the area of joint resource development
projects. A second Comecon bank, the International Investment
Bank, was established in 1970 to provide a mechanism for the
joint financing of such projects. In 1973 Comecon decided to draw
up a general plan incorporating these measures. A number of
projects formulated in the years immediately following adoption
of the Comprehensive Program were then assembled in a document
signed at the 29th Council Session in 1975. Entitled the
"Concerted Plan for Multilateral Integration Measures," the
document covered the 1976-80 five-year-plan period and was
proclaimed as the first general plan for the Comecon economies.
The joint projects included in the plan were largely completed in
the course of the plan period.

A second major initiative toward implementation of the
Comprehensive Program came in 1976 at the 30th Council Session,
when a decision was
made to draw up Long-Term Target Programs for Cooperation in
major economic sectors and subsectors. The session designated a
number of objectives to which target programs would be directed:
"guarantee of the economically based requirements of Comecon
member countries for basic kinds of energy, fuels, and raw
materials; the development of the machine-building industries on
the basis of intense specialization and cooperation in
production; the fulfillment of national demands for basic
foodstuffs and industrial consumer goods; and modernization and
development of transport links among member countries." The 32d
Council Session, held in 1978, approved target programs for
cooperation through 1990 in the first two areas, as well as in
agriculture and the food industries. These programs established
the commitments to multilateral cooperation that member countries
were to take into account when drawing up their five-year plans
for the 1980s.

By the end of the 1970s, with the exception of Poland's
agricultural sector, the economic sectors of all Comecon
countries had converted to the socialist system. Member states
had restructured their economies to emphasize industry,
transportation, communications, and material and technical
supply, and they had decreased the share of resources devoted to
agricultural development. Within industry, member states devoted
additional funds to machine building and production of chemicals.
Socialist economic integration resulted in the production of
goods capable of competing on the world market.

The 1980s

Most Comecon countries ended their 1981-85 five-year plans
with decreased extensive economic development (see Glossary),
increased expenses for fuel and raw materials, and decreased
dependency on the West for both credit and hard currency imports.
In the early 1980s, external economic relations had greater
impact on the Comecon countries than ever before. When extending
credit to East European countries, Western creditors did so
assuming that the Soviet Union would offer financial assistance
in the event that payment difficulties arose. This principle,
which has always been rejected in the East bloc, proved
inoperable in the aftermath of the Polish crisis of 1979-82. The
sharp rise in interest rates in the West put the Polish debt at
an excessively high level, beyond the amount that the Soviet
Union could cover. The resulting liquidity shortage (see
Glossary) that occurred in all Comecon countries in 1981 forced
them to reduce hard-currency imports.

In the 1980s, high interest rates and the increased value of
the United States dollar on international markets made debt
servicing more expensive. Thus, reducing indebtedness to the West
also became a top priority within Comecon. From 1981 to 1985, the
European countries of Comecon attempted to promote the faster
growth of exports over imports and sought to strengthen
intraregional trade, build up an increased trade surplus, and
decrease indebtedness to Western countries.

In the 1980s, Comecon sessions were held on their regular
annual schedule. The two most notable meetings were the special
sessions called in June 1984 and December 1985. The first summit-
level meeting of Comecon member states in fifteen years was held
with much fanfare on June 12-14, 1984, in Moscow (the 23d
"Special" Session of Comecon Member Countries). The meeting was
held to discuss coordination of economic strategy and long-term
goals in view of the "differing perspectives and contrary
interests" that had developed among Comecon members since 1969.
More specifically, the two fundamental objectives of the meeting
were to strengthen unity among members and establish a closer
connection between the production base, scientific and
technological progress, and capital construction. However,
despite the introduction of proposals for improving efficiency
and cooperation in six key areas, Western and some Eastern
analysts claimed that the meeting was anticlimactic and even a
failure.

The ideas and results of the June 14 session were elaborated
at the Extraordinary 41st Council Session, which was held on
December 17-18, 1985, in Moscow. The meeting was heralded in the
Comecon community as "one of the more memorable events in Comecon
history." This special session featured the culmination of
several years of work on the new Comprehensive Program for
Scientific and Technical Progress up to the Year 2000. It aimed
to create "a firm base for working out an agreed, and in some
areas, unified scientific and technical policy and the practical
implementation, in the common interest, of higher achievements in
science and technology."

The Comprehensive Program for Scientific and Technical
Progress up to the Year 2000 was originally to be ratified in
1986, but the Soviets advocated an earlier date of completion to
enable the Comecon countries to incorporate their commitments to
implement the program in their next five-year plans (which
started in January 1986). The program laid out sizable tasks in
five key areas: electronics, automation systems, nuclear energy,
development of new materials, and biotechnology. It sought to
restructure and modernize the member states' economies to
counteract constraints on labor and material supplies. The need
to move to intensive production techniques within Comecon was
evident from the fact that from 1961 to 1984 the overall material
intensiveness of production did not improve substantially. The
1985 program provided a general framework for Comecon's new
direction of development. Details were to be settled in bilateral
agreements.

COOPERATION UNDER THE 1971 COMPREHENSIVE PROGRAM

The distinction between "market" relations and "planned"
relations made in the discussions within Comecon prior to the
adoption of the 1971 Comprehensive Program remains a useful
approach to understanding Comecon activities. Comecon remains in
fact a mixed system, combining elements of both plan and market
economies. Although official rhetoric emphasizes regional
planning, it must be remembered that intra-Comecon relations
continue to be conducted among national entities not governed by
any supranational authority. They thus interact on a
decentralized basis according to terms negotiated in bilateral
and multilateral agreements on trade and cooperation.

Market Relations and Instruments

It is not surprising, given the size of the Soviet economy,
that intra-Comecon trade has been dominated by exchanges between
the Soviet Union and the other members. Exchanges of Soviet fuels
and raw materials for capital goods and consumer manufactures
have characterized trade, particularly among the original
members. The liquidity shortage in the early 1980s forced the
European Comecon countries to work to strengthen the importance
of intraregional trade. In the early 1980s, intraregional trade
rose to 60 percent of foreign trade of Comecon countries as a
whole; for individual members it ranged from 45 to 50 percent in
the case of Hungary, Romania, and the Soviet Union, to 83 percent
for Cuba and 96 percent for Mongolia.

Trade among the members is negotiated on an annual basis and
in considerable detail at the governmental level and is then
followed up by interenterprise contracts. Early Comecon efforts
to facilitate trade among members concentrated on development of
uniform technical, legal, and statistical standards and on
encouragement of long-term trade agreements. The 1971
Comprehensive Program sought to liberalize the system somewhat by
recommending broad limits to "fixed-quota" trade among members
(trade subject to quantitative or value targets set by bilateral
trade agreements). Section VI, Paragraph 19 of the Comprehensive
Program affirms that "mutual trade in commodities for which no
quotas are established shall be carried on beginning in 1971 with
a view to stimulating the development of trade turnover, through
expansion of the range and assortment of traded commodities, and
to making trade in these commodities more brisk." Later in the
same paragraph the Comprehensive Program calls on members to
"seek opportunities to develop the export and import of quota-
free commodities and to create conditions essential for trade in
such commodities." There is no evidence, however, that this
appeal has had significant effect or that quota-free trade has
grown in importance under the program.

Prices

The 1971 Comprehensive Program also called for improvement in
the Comecon system of foreign trade prices. Administratively set
prices, such as those used in intra-Comecon trade, do not reflect
costs or relative scarcities of inputs and outputs. For this
reason, intra-Comecon trade has been based on world market
prices. By 1971 a price system governing exchanges among members
had developed, under which prices agreed on through negotiation
were fixed for five-year periods (corresponding to those of the
synchronized, five-year plans of the members). These contract
prices were based on adjusted world market prices averaged over
the immediately preceding five years; that is, a world-price base
was used as the starting point for negotiation. Under this
system, therefore, intra-Comecon prices could and did depart
substantially from relative prices on world markets.

Although the possibility of breaking this tenuous link with
world prices and developing an indigenous system of prices for
the Comecon market had been discussed in the 1960s, the evolution
of Comecon prices after 1971 went in the opposite direction. Far
from a technical or academic matter, the question of prices
underlay vital issues of the terms of, and hence gains from,
intra-Comecon trade. In particular, relative to actual world
prices, intra-Comecon prices in the early 1970s penalized raw
materials exporters and benefited exporters of manufactures.
After the oil price explosion of 1973, Comecon foreign trade
prices swung still further away from world prices to the
disadvantage of Comecon suppliers of raw materials, in particular
the Soviet Union. In view of the extraregional opportunities
opened up by the expansion of East-West trade, this yawning gap
between Comecon and world prices could no longer be ignored.
Hence in 1975, at Soviet instigation, the system of intra-Comecon
pricing was reformed.

The reform involved a substantial modification of existing
procedures (known as the "Bucharest formula," from the location
of the 9th Council Session in 1958 at which it was adopted), but
not their abandonment. Under the modified Bucharest formula
(which remained in effect as of 1987), prices were fixed every
year and were based on a moving average of world prices for the
preceding five years. The world-price base of the Bucharest
formula was thus retained and still represented an average
(although now moving) of adjusted world prices for the preceding
five years. For 1975 alone, however, the average was for the
preceding three years. Under these arrangements, intra-Comecon
prices were more closely linked with world prices than before and
throughout the remainder of the 1970s rose with world prices,
although with a lag. Until the early 1980s, this new system
benefited both the Soviet Union and the other Comecon countries
since Soviet oil, priced with the lagged formula, was
considerably cheaper than Organization of Petroleum Exporting
Countries (OPEC) oil, the price of which increased drastically in
the 1970s. By 1983-84 this system turned to the Soviet Union's
advantage because world market oil prices began to fall, whereas
the lagged Soviet oil prices continued to rise.

Exchange Rates and Currencies

Basic features of the state trading systems of the Comecon
countries are multiple exchange rates and comprehensive exchange
controls that severely restrict the convertibility of members'
currencies.

These features are rooted in the planned character of the
members' economies and their systems of administered prices.
Currency inconvertibility in turn dictates bilateral balancing of
accounts, which has been one of the basic objectives of
intergovernmental trade agreements among members. An earlier
system of bilateral clearing accounts was replaced on January 1,
1964, by accounts with the International Bank for Economic
Cooperation, using the transferable ruble as the unit of account.
Although the bank provided a centralized mechanism of trade
accounting and swing credits to cover temporary imbalances, it
could not establish a system of multilateral clearing given the
centrally planned nature of the members' economies and the
inconvertibility of their currencies. In 1987 the transferable
ruble remained an artificial currency functioning as an
accounting unit and was not a common instrument for multilateral
settlement. For this reason, this currency continued to be termed
"transferable" and not "convertible."

The member countries recognize that the multiplicity and
inconsistency of their administered exchange rates, the
separation of their domestic prices from foreign prices, and the
inconvertibility of their currencies are significant obstacles to
multilateral trade and cooperation. As of early 1987, Comecon
lacked not only a flexible means of payment but also a
meaningful, standard unit of account. Both problems have vastly
complicated the already complex multilateral projects and
programs envisaged by the Comprehensive Program. The creation in
1971 of the International Investment Bank provided a mechanism
for joint investment financing, but, like the International Bank
for Economic Cooperation, this institution could not by itself
resolve these fundamental monetary problems.

Recognizing that money and credit should play a more active
role in the Comecon system, the Comprehensive Program established
a timetable for the improvement of monetary relations. According
to the timetable, measures would be taken "to strengthen and
extend" the functions of the "collective currency" (the
transferable ruble), and the conditions would be studied and
prepared "to make the transferable ruble convertible into
national currencies and to make national currencies mutually
convertible." To this end, steps would be taken to introduce
"economically well-founded and mutually coordinated" rates of
exchange between members' currencies and "between 1976 and 1979"
to prepare the groundwork for the introduction by 1980 of a
"single rate of exchange for the national currency of every
country." This timetable was not met. Only in Hungary were the
conditions for convertibility gradually being introduced by
reforms intended to link domestic prices more directly to world
prices.

Cooperation in Planning

If countries are to gain from trade, that trade must be based
on rational production structures reflecting resource scarcities.
Since the early 1960s, official Comecon documents have stressed
the need to promote among members' economies a more cost-
effective pattern of specialization in production. This
"international socialist division of labor" would, especially in
the manufacturing sector, involve specialization within major
branches of industry. In the absence of significant,
decentralized allocation of resources within these economies,
however, production specialization can be brought about only
through the mechanism of the national plan and the investment
decisions incorporated in it. In the absence at the regional
level of supranational planning bodies, a rational pattern of
production specialization among members' economies requires
coordination of national economic plans, a process that is not
merely technical but also poses inescapable political problems.

The coordination of national five-year economic plans is the
most traditional form of cooperation among the members in the
area of planning. Although the process of consultation underlying
plan coordination remains essentially bilateral, Comecon organs
are indirectly involved. The standing commissions draw up
proposals for consideration by competent, national planning
bodies; the Secretariat assembles information on the results of
bilateral consultations; and the Council Committee for
Cooperation in Planning (created by Comecon in 1971 at the same
session at which the Comprehensive Program was adopted) reviews
the progress of plan coordination by members.

In principle, plan coordination covers all economic sectors.
Effective and comprehensive plan coordination has, however, been
significantly impeded by the continued momentum of earlier
parallel development strategies and the desire of members to
minimize the risks of mutual dependence (especially given the
uncertainties of supply that are characteristic of the members'
economies). Plan coordination in practice, therefore, remains for
the most part limited to mutual adjustment, through bilateral
consultation, of the foreign trade sectors of national five-year
plans. Under the Comprehensive Program, there have been renewed
efforts to extend plan coordination beyond foreign trade to the
spheres of production, investment, science, and technology.

Plan Coordination

According to the 1971 Comprehensive Program, joint planning--
multilateral or bilateral--is to be limited to "interested
countries and is "not to interfere with the autonomy of internal
planning." Participating countries will, moreover, retain
national ownership of the productive capacities and resources
jointly planned. But "joint plans worked out by the member
countries will be taken into account by them when drafting their
long-term or five-year plans."

The Comprehensive Program does not clearly assign
responsibility for joint planning to any single agency. On the
one hand, "coordination of work concerned with joint planning
shall be carried out by the central planning bodies of Comecon
member countries or their authorized representatives." On the
other hand, "decisions on joint, multilateral planning of chosen
branches and lines of production by interested countries shall be
based on proposals by countries or Comecon agencies and shall be
made by the Comecon Executive Committee, which also determines
the Comecon agencies responsible for the organization of such
work." Finally, mutual commitments resulting from joint planning
and other aspects of cooperation shall be incorporated in
agreements signed by the interested parties.

It is extremely difficult to gauge the implementation of plan
coordination or joint planning under the Comprehensive Program or
to assess the activities of the diverse international economic
organizations. There is no single, adequate measure of such
cooperation. The only data on activities among the Comecon
countries published by the annual Comecon yearbooks refer to
merchandise trade, and these trade figures cannot be readily
associated with cooperative measures taken under the
Comprehensive Program. Occasional official figures are published,
however, on the aggregate number of industrial specialization and
co-production agreements signed by members.

Joint Projects

The clearest area of achievement under the Comprehensive
Program has been the joint exploitation and development of
natural resources for the economies of the member countries.
Joint projects ease the investment burden on a single country
when expansion of its production capacity is required to satisfy
the needs of other members. Particular attention has been given
to energy and fuels, forest industries, iron and steel, and
various other metals and minerals. Most of this activity has been
carried out in the Soviet Union, the great storehouse of natural
resources within Comecon.

Joint development projects are usually organized on a
"compensation" basis, a form of investment "in kind."
Participating members advance materials, equipment and, more
recently, manpower and are repaid through scheduled deliveries of
the output resulting from, or distributed through, the new
facility. Repayment includes a modest "fraternal" rate of
interest, but the real financial return to the participating
countries depends on the value of the output at the time of
delivery. Deliveries at contract prices below world prices will
provide an important extra return. No doubt the most important
advantage from participation in joint projects, however, is the
guarantee of long-term access to basic fuels and raw materials in
a world of increasing uncertainty of supply of such products.

The Concerted Plan

The multilateral development projects concluded under the
Comprehensive Program formed the backbone of Comecon's Concerted
Plan for the 1976-80 period. The program allotted 9 billion
rubles (nearly US$12 billion at the official 1975 exchange rate
of US$1.30 per ruble) for joint investments. The Orenburg project
was the largest project under the Comprehensive Program. It was
undertaken by all East European Comecon countries and the Soviet
Union at an estimated cost ranging from the equivalent of US$5
billion to US$6 billion, or about half of the cost of all Comecon
projects under the Concerted Plan. It consists of a natural gas
complex at Orenburg in western Siberia and the 2,677-kilometer
Union (Soiuz) natural-gas pipeline, completed in 1978, which
links the complex to the western border of the Soviet Union.
Construction of a pulp mill in Ust' Ilim (in central Siberia) was
the other major project under this program.

These two projects differed from other joint Comecon
investments projects in that they were jointly planned and
jointly built in the host country (the Soviet Union in both
cases). Although the other projects were jointly planned, each
country was responsible only for construction within its own
borders. Western technology, equipment, and financing played a
considerable role. The Soviet Union owns the Orenburg complex and
the Ust' Ilim installation and is repaying its East European co-
investors at a 2 percent interest rate with an agreed-upon amount
of natural gas and wood pulp.

The early 1980s were characterized by more bilateral
investment specialization but on a much smaller scale than
required for the Orenburg and Ust' Ilim projects. In these latter
projects, Eastern Europe provided machinery and equipment for
Soviet multilateral resource development. Work also progressed on
the previously mentioned Long-Term Target Programs for
Cooperation (see The Comprehensive Program for Socialist Economic
Integration, 1971, this Appendix).

Cooperation in Science and Technology

To supplement national efforts to upgrade indigenous
technology, the 1971 Comprehensive Program emphasizes cooperation
in science and technology. The development of new technology is
envisaged as a major object of cooperation; collaboration in
resource development and specialization in production are to be
facilitated by transfers of technology between members. The 1971
Comecon session, which adopted the Comprehensive Program, decided
to establish the Special Council Committee for Scientific and
Technical Cooperation to ensure the organization and fulfillment
of the provisions of the program in this area. Jointly planned
and coordinated research programs have extended to the creation
of joint research institutes and centers. In terms of number of
patents, documents, and other scientific and technical
information exchanges, the available data indicate that the
Soviet Union has been the dominant source of technology within
Comecon. It has, on the whole, provided more technology to its
East European partners than it has received from them, although
the balance varies considerably from country to country depending
upon relative levels of industrial development. Soviet science
also forms the base for several high-technology programs for
regional specialization and cooperation, such as nuclear power
and computers.

The Comprehensive Program for Scientific and Technical
Progress up to the Year 2000, adopted in December 1985, has
boosted cooperation in science and technology. The program sets
forth 93 projects and 800 subprojects within 5 broad areas of
development (see Early years, this Appendix). A Soviet ministry
will supervise each of the areas and will be responsible for the
technical level and quality of output, compliance with research
and production schedules, costs, and sales. Each project will be
headed by a Soviet organization, which will award contracts to
other Comecon-member organizations. The Soviet project heads, who
will not be responsible to domestic planners, will have extensive
executive powers of their own and will closely supervise all
activities. The program represents a fundamentally new approach
to multilateral collaboration and a first step toward investing
Comecon with some supranational authority.

Labor Resources

Just as the 1971 Comprehensive Program stimulated investment
flows and technology transfers among members, it also increased
intra-Comecon flows of another important factor of production:
labor. Most of the transfers occurred in connection with joint
resource development projects, e.g., Bulgarian workers aiding in
the exploitation of Siberian forest resources, Polish workers
assisting in the construction of the Union pipeline, or
Vietnamese workers helping on the Friendship pipeline in the
Soviet Union. Labor was also transferred in response to labor
imbalances in member countries. Hungarian workers, for example,
were sent to work in East Germany under a bilateral agreement
between the two countries. Such transfers, however, are
restricted by the universal scarcity of labor that has emerged
with the industrialization of the less developed Comecon
countries. Moreover the presence of foreign workers has raised
practical and ideological issues in socialist planned economies.
It should be noted, finally, that cooperation in the area of
labor has been by no means limited to planned exchanges of
manpower. Comecon countries have exchanged information on
experience in manpower planning and employment and wage policies
through Comecon organs and activities.

POWER CONFIGURATIONS WITHIN COMECON

The Soviet Union and Eastern Europe

Since Comecon's creation in 1949, the relationship between
the Soviet Union and the six East European countries has
generally remained the same. The Soviet Union has provided fuel,
nonfood raw materials, and semimanufactures (hard goods) to
Eastern Europe, which in turn has supplied the Soviet Union with
finished machinery and industrial consumer goods (soft goods).

This kind of economic relationship stemmed from a genuine
need by the parties in the 1950s. Eastern Europe has poor energy
and mineral resources, a problem exacerbated by the low energy
efficiency of East European industry. As of mid-1985, factories
in Eastern Europe still used 40 percent more fuel than those in
the West. As a result of these factors, Eastern European
countries have always relied heavily on the Soviet Union for oil.
For its part, in the 1950s Eastern Europe supplied the Soviet
Union with those goods otherwise unavailable because of Western
embargoes. Thus, from the early 1950s to the early 1970s, during
the time when there was no world shortage of energy and raw
materials, the Soviet Union inexpensively supplied its East
European clients with hard goods in exchange for finished
machinery and equipment. In addition, Soviet economic policies
bought political and military support. During these years, the
Soviet Union could be assured of relative political tranquillity
within the bloc, obedience in international strategy as laid down
by the Soviet Union, and military support of Soviet aims. By the
1980s, both parties were accustomed to this arrangement. The
Soviet Union was particularly happy with the arrangement since it
still could expand its energy and raw materials complex quickly
and relatively cheaply.

In the 1970s, the terms of trade for the Soviet Union had
improved. The OPEC price for oil had soared, which put the Soviet
Union in a very advantageous position because of its bountiful
supply of oil. The soaring price increased the opportunity cost
(see Glossary) of providing Eastern Europe with oil at prices
lower than those established by OPEC. In addition, extraction and
transportation costs for these goods, most of which originated in
Siberia, were also rising. In response to the market, the Soviet
Union decreased its exports to its East European partners and
increased its purchases of soft goods from these countries. This
policy forced the East European countries to turn to the West for
hard goods despite the fact that they had fewer goods to export
in return for hard currency.

Any hard goods supplied to Eastern Europe by the Soviet Union
were sold essentially at a discount price because Comecon prices
lagged behind and were lower that those of the world market.
Developments in the 1980s made this situation even more complex.
The 1983-84 decline in international oil prices left the Soviets
with large holdings of oil that, because of the lag in Comecon
prices, were still increasing in price. The "nonmarket gains from
preferential trade" became quite expensive for the Soviets. East
European profits from the implicit subsidization were almost
US$102 billion between 1971 and 1981.

Mongolia, Cuba, and Vietnam

Soviet-initiated Comecon support for the Council's three
least-developed members--Cuba, Mongolia, and Vietnam--has clearly
benefited them, but the burden on the six East European Comecon
members has been most unwelcome. Comecon is structured in such a
way that the more economically developed members provide support
for the less developed members in their major economic sectors.
Initially, when Mongolia joined Comecon in 1962, there was no
great added burden. The population of Mongolia was relatively
small (1 million), and the country's subsidies came primarily
from the Soviet Union. The addition of Cuba (9 million people) in
1972 and Vietnam (40 million people) in 1978, however, quickly
escalated the burden. As of early 1987, three-fourths of
Comecon's overseas economic aid went to Cuba, Mongolia, and
Vietnam: almost US$4 billion went to Cuba, US$2 billion to
Vietnam (half in military aid), and US$1 billion to Mongolia.

Although the Soviets carry most of the burden, since 1976 the
East Europeans have been persuaded to take part in projects to
boost the developing countries' economies. East European
countries import Cuban nickel and Mongolian molybdenum and
copper; they are also pressed to buy staples, such as Cuban sugar
(80 percent of Cuba's exports), at inflated prices. Eastern
Europe also contributes to the International Investment Bank,
from which the underdeveloped three can acquire loans at lower
interest rates (0.5 to 2 percent) than the East Europeans
themselves (2 to 5 percent). In addition, the Soviets sell their
fuel and raw materials to Cuba, Vietnam, and Mongolia for less
than it is sold to the six East European members. Hence the
latter have become competitors for the slowly diminishing Soviet
resources. As of 1987, the only benefit accruing to the East
Europeans was the services provided by Vietnamese guest workers.
However, the majority of the Vietnamese have worked primarily on
the Friendship pipeline in the Soviet Union.

Undeniably, Comecon has been investing heavily in Mongolia,
Cuba, and Vietnam; and the three countries have benefited
substantially from these resources. In 1984 increases in capital
investments within Comecon were the highest for Vietnam and Cuba
(26.9 percent for Vietnam and 14 percent for Cuba, compared with
3.3 percent and less for the others, except Poland and Romania).
Increased investments in Mongolia lagged behind Poland and
Romania but were nevertheless substantial (5.8 percent). In 1984
the economies of the three developing countries registered the
fastest industrial growth of all the Comecon members (see table
B, this Appendix).

Given their locations, Comecon membership for Mongolia, Cuba,
and Vietnam appears principally to serve Soviet foreign policy
interests. The Soviet Union contributes the most to the
development to the three poorer Comecon members, and it also
reaps most of the benefits. The Soviet Union imports most of
Cuba's sugar and nickel and all of Mongolia's copper and
molybdenum (widely used in the construction of aircraft,
automobiles, machine tools, gas turbines, and in the field of
electronics). Cuba has provided bases for the Soviet Navy and
military support to Soviet allies in Africa. Vietnam makes its
naval and air bases, as well as some 100,000 guest workers,
available to the Soviets.

At the June 1984 Comecon economic summit and at subsequent
Council sessions, the policy of equalizing the levels of economic
development between Comecon member countries was repeatedly
stressed. At the November 1986 Comecon session in Bucharest, the
East European members "outlined measures to further improve
cooperation with Vietnam, Cuba, and Mongolia with a view to
developing the main sectors of these countries' national
economies." Moreover, the Soviets have repeatedly stressed their
earnestness in "normalizing the situation in the Asia-Pacific
region and in including that region in the overall process of
creating a universal system of international security."

Support for Developing Countries

Comecon provided economic and technical support to 34
developing countries in 1960, 62 countries in 1970, and over 100
countries in
1985. As of 1987, Comecon had assisted in the construction or
preparation of over 4,000 projects (mostly industrial) in Asia,
Latin America, and Africa (see fig. C, this Appendix). A monetary
figure for this assistance is difficult to estimate, although a
June 1986 Czechoslovak source valued the exchange between Comecon
and developing countries at 34 billion rubles per year, the
equivalent of US$44.2 billion. The precise nature of this aid was
unclear, and Western observers believe the data to be inflated.

From the 1960s to the mid-1980s, Comecon has sought to
encourage the development of industry, energy, transportation,
mineral resources, and agriculture of Third World countries.
Comecon countries have also provided technical and economic
training for personnel in Asia, Africa, and Latin America. When
Comecon initially lent support to developing countries, it
generally concentrated on developing those products that would
support the domestic economies of the Third World, including
replacements for imports. In the 1970s and 1980s, assistance from
Comecon has been directed toward export-oriented industries.
Third World countries have paid for this support with products
produced by the project for which Comecon rendered help. This
policy has provided
Comecon with a stable source of necessary deliveries in addition
to political influence in these strategically important areas.

TRENDS AND PROSPECTS

Comecon has served for more than three decades as a framework
for cooperation among the planned economies of the Soviet Union,
its allies in Eastern Europe, and, now, Soviet allies in the
Third World. Over the years, the Comecon system has grown
steadily in scope and experience. The organization now
encompasses a complex and sophisticated set of institutions that
represent a striking advance over the capabilities of the
organization in the early 1960s.

This institutional evolution has reflected changing and
expanding goals. Initial, modest objectives of "exchanging
experience" and providing "technical assistance" and other forms
of "mutual aid" have been extended to the development of an
integrated set of economies based on a coordinated international
pattern of production and investment. These ambitious goals are
pursued through a broad spectrum of cooperative measures
extending from monetary to technological relations.

At the same time, the extraregional goals of the organization
have expanded; other countries, both geographically distant and
systemically different, are being encouraged to participate in
Comecon activities. Parallel efforts have sought to develop
Comecon as a mechanism through which to coordinate the foreign
economic policies of the members as well as their actual
relations with nonmember countries and such organizations as the
EEC and the United Nations.

Asymmetries of size and differences in levels of development
among Comecon members have deeply affected the institutional
character and evolution of the organization. The overwhelming
dominance of the Soviet economy has necessarily meant that the
bulk of intra-Comecon relations takes the form of bilateral
relations between the Soviet Union and the smaller members of
Comecon.

These asymmetries have served in other ways to impede
progress toward multilateral trade and cooperation within the
organization. The sensitivities of the smaller states have
dictated that the sovereign equality of members remains a basic
tenet of the organization. Despite Soviet political and economic
dominance, sovereign equality has constituted a very real
obstacle to the acquisition of supranational powers by Comecon
organs. Nevertheless, the 1985 Comprehensive Program for
Scientific and Technical Progress up to the Year 2000 took steps
to instill some organizations with supranational authority.

The planned nature of the members' economies and the lack of
effective market-price mechanisms to facilitate integration have
further hindered progress toward Comecon goals. Without the
automatic workings of market forces, progress must depend upon
conscious acts of policy. This tends to politicize the processes
of integration to a greater degree than is the case in market
economies.

By 1987 Comecon's Comprehensive Program, adopted in 1971, had
undergone considerable change. Multilateral planning faded into
traditional bilateral cooperation, and the Bucharest formula for
prices assumed a revised form. The 1985 Comprehensive Program for
the Development of Science and Technology or, as some Western
analysts call it, the "Gorbachev Charter," was Comecon's new
blueprint for taking a firm grip on its future. Experience in the
early 1980s showed that turning to the West and Japan for
technological advancement put Comecon in a very dangerous
position because it pulled the East European members further away
from the Soviet Union and threatened to leave the entire
organization at the mercy of the West. The purpose of the 1985
program was to offset centrifugal forces and reduce Comecon's
vulnerability to "technological blackmail" through broadened
mutual cooperation, increased efficiency of cooperation, and
improved quality of output.

The success of the 1985 program will be closely tied to the
success of Gorbachev's changes in the Soviet economy. Major
projects for the 1986-90 period include a 5,600-kilometer
natural-gas pipeline from the Yamburg Peninsula (in northern
Siberia) to Eastern Europe; the Krivoy Rog (in the Ukraine), a
mining and enrichment combine that will produce 13 million tons
of iron ore annually; the production and exchange of 500 million
rubles' worth (approximately US$650 million) of equipment for
nuclear power plants; and joint projects for extracting coal in
Poland, magnesite in Czechoslovakia, nickel in Cuba, and
nonferrous metals in Mongolia. Recalling the failure record of
previous Comecon products (for example, the disappointing Riad
computer project), some Western analysts question whether the
1985 program will accomplish all that it has set out to do.

* * *

Although the selection is still rather sparse, several
English-language works on Comecon appeared in the early 1980s.
Socialist Economic Integration by Jozef van Brabant
discusses in great detail the mechanisms and operations of
socialist economic integration in general and Comecon in
particular. It is perhaps the most comprehensive English-language
work on the subject. Several chapters in East European
Integration and East-West Trade, edited by Paul Marer and
John Michael Montias, are particularly helpful in analyzing the
mechanisms of Comecon and comparing it with the EEC. Analysis of
Comecon's operations and development in the modern economic and
political arena is provided in Marer's "The Political Economy of
Soviet Relations with Eastern Europe" in Soviet Policy in
Eastern Europe. The best sources for up-to-date political
and economic analysis are the Radio Free Europe background
reports. Articles by Vladimir Sobell, in particular, give good
insight into the 1985 Comprehensive Program for Scientific and
Technical Development.

Russian-language sources provide useful information on Comecon procedures and
structure in addition to insight into the Soviet and East European view of Comecon's
goals and shortcomings. Articles in this vein can be found in Voprosy ekonomiki
and the "Ekonomika" series published in Moscow by Znanie. Selected articles
from these publications can be found in the Joint Publications Research Service's
USSR Report on Economic Affairs. The Comecon Secretariat publishes a bimonthly
bulletin (Ekonomicheskoe sotrudnichestvo stran-chlenov SEV), which
has a table of contents and a summary in English; an annual Statisticheskii
ezhegodnik stran-chlenov SEV; and various handbooks. (For complete citations
and further information, see Bibliography.)

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